Chapter 1 Partnerships Flashcards
How are partnerships categorized?
Two significant ways of categorising partnerships:
1)• universal partnership v particular partnership
2)• ordinary partnership v extraordinary partnership
What is a partnership?
A partnership may defined as:
- A Legal relationship;
- Created by way of a contract;
- Between two or more persons*;
- With Each partner Undertaking to contribute;
- Which is carried on for joint benefit of the parties; &
- Object of which is to make profit.
What is a Universal Partnership?
A universal partnership involves:
- partners contributing all their property or all their profits to the partnership;
- Usually for an open-ended period of time; &
- For wide ranging purposes;
- With a commensurate sharing of the profits of their enterprises.
What are the 2 types of Universal Partnerships?
1) Universorum Bonorum:
- Generally takes place within the context of a marriage;
- Especially In Community of Property;
- Can be excluded by means of ANC.
- (Ponelat and Butters cases)
2) Universorum Quae ex Quaestu Veniunt:
- Occurs within context of commercial undertakings;
- All property acquired during p/ship.
What is a Particular Partnership?
Particular Partnerships are:
- Usually a more temporary and focused arrangement;
- Where partners contribute their resources for a particular defined purpose only; &
- Share only in profits from that particular project together.
What is the difference between Ordinary Partnerships and Extraordinary Partnerships?
In an Ordinary Partnership:
- Partners are jointly and severally liable for all the debts of the p/ship.
Whereas in a Extraordinary Partnership:
- Liability of certain partners are limited in respect of third parties.
What are the different forms of Extraordinary Partnerships?
There are 3 forms of extraordinary partnerships in which the liability of certain partners to third parties may be limited. These are the following:
1) An Anonymous/ Silent partnership;
2) A partnership En Commandite;
3) Special Partnerships (Cape/Natal)
What are Anonymous Partnerships?
An anonymous partnership is one where:
- Business is conducted in the name of one of the partners, not in the name of the partnership, or;
- In the name of any of the anonymous partners; &
- So long as the name(s) of the anonymous partners aren’t disclosed to the public, they are not liable to 3rd parties for debts of the partnership; but
- Are liable to their partners to the extent agreed upon.
What is a partnership En Commandite?
Partnership En Commandite is similar to Anonymous Partnership, but shouldn’t be equated thereto.
- Business is carried on in the name of one or more of partners;
- The partners who aren’t disclosed (partner En Commandite), make a contribution in the form of a fixed sum of money; &
- They aren’t liable to 3rd parties;
- Only liable to partners to extent of agreed upon contribution.
What is a Special Partnership?
A Special Partnership was registered in terms of legislation repealed in 1978, however no rights and obligations of partnerships registered under this legislation, have been affected.
Special Partnerships consist of:
- General Partners: jointly and severally liable for debts of partnership and are the only persons who are authorised to transact business of the p/ship; &
- Special Partners: make a contribution of fixed sum in cash, and they aren’t liable for any debt of the p/ship extending beyond the amount contributed by them.
What are the Essentialia of a partnership?
The 4 essentials of a partnership were set out in Joubert v Tarry and Co.:
1) Contribution by Each party
- Money, labour, knowledge, skill etc;
- Must have commercial value;
- Need not be capable of precise pecuniary assessment (Pezzuto case)
2) Joint Benefit
- P/ship can’t exist where each party can claim individual benefit from business as he deems fit;
- Each partner must share in the profits and losses (can’t only share in profits and never losses);
- SA law doesn’t recognise p/ship where one partner entitled to all profits and another partner entitled to losses.
3) Profit Objective
- Ally v Dinath (profit= a material gain)
- not sports clubs, welfare, charity etc.
4) Legitimate Contract
- Valid agreement (5 requirements for valid contract)
- Essentialia of contract must be present;
- Pezzutto v Dreyer (handshake agreement)
What further requirements apply to a partnership?
1) Valid Contract
- Not against the law
2) No formalities
- Can be in writing, orally, implied by contract
- Parties can agree on formalities between themselves.
What is the legal nature of a partnership?
There are 2 theories:
1) Entity Theory
- View partnership as entity separate from its members, so that it becomes holder of rights and obligations.
2) Aggregate (Association) Theory (SA law)
- Treats a p/ship as an aggregate or collection of individual parties (partners).
- Partners are owners of p/ship property, and rights and obligations of p/ship are considered to be their rights and obligations.
What are the 2 exceptions or the aggregate theory?
1) Sequestration
- S13(1) Insolvency Act: If the court sequestration the estate of a partnership… It shall simultaneously sequestrate the estate of every member of the partnership. (Check notes)
2) Litigation
- Claim by or against a partnership may be instituted in the name of the p/ship.
- Rules of court
(Uniform High Court Rule 14)
- Name of firm
- No need to include names of parties.
What rights do partners share in a Partnership?
Rights:
1) Share in profits;
2) Participate in management;
3) Compensation;
4) Inspect books;
5) Distribution upon dissolution.
What duties do partners have in a partnership?
Duties:
1) Contribution;
2) Share losses;
3) Disclosure;
4) Guard against a conflict of interest;
5) Account
In a partnership, who has the authority to contract with third parties?
Only the partners have authority to contract (aggregate theory).
When a partner contracts with a 3rd party on behalf of the partnership:
- He acts as a principal on behalf of himself; &
- As a representative (agent) on behalf of the other partners;
Provided that he acts within the scope of his authority. (Actual v Ostensible Authority)
Who is liable in terms of a partnership?
In general terms, all partners are jointly and severally liable for the debts of the partnership,
- Thus, creditors must sue all partners not only some (co-debtors);
- Only after dissolution does this rule no longer apply.
On what grounds may a partnership be dissolved or terminated?
Grounds for dissolution:
1) Mutual Agreement;
2) Expiry of term;
3) Completion of partnership business;
4) Loss of substratum;
5) Change in membership;
6) Court order;
7) War;
8) Sequestration.
What are the consequences of the dissolution of a partnership?
1) The Relationship changes
- Some duties remain
- Agreement terminates
- Mutual Mandate terminates.
2) Debtors/Creditors
- Obligations aren’t terminated
- Partners joint and several debtors
- Partners joint creditors
3) Liquidation of partnership estate
- Realisation of assets
- Payment of creditors
- Contribution
- Distribution.
